A. Seven Key Factors to Fantastic Failures and Billion Dollar Blunders with Five Stories of Salutary Calamities to Learn From


    The "fantastic failures" have some fairly consistent common denominators. Seven of these denominators are stated in below in the later part of I. Why Smart Executives Fail. It is followed by II. Learning from Strategy and Leadership Failure.

    "Fantastic failures" does not refer to mistakes that cost a company tens of millions of dollars. Neither does it refer to people who tanked a hundred million-dollar company.  It refers to people responsible for losing, destroying, pulverizing a billion* dollars and more of assets. The "billion dollar blunder" leaders are hence renamed here "Bleaders." The failure drivers which follow are adapted from Sydney Finkelstein's "Seven Habits of Spectacularly Unsuccessful People,"  in his landmark book Why Smart Executives Fail and What You Can Learn From Their Mistakes, Penguin, 2003. Sydney Finkelstein is a professor at Tuck´s School of Business at Dartmouth (one of the eight Ivy League universities, of which Yale, Harvard and Princeton are the best known). His reasons for failure are synthesized and tempered by my own extensive experience with management disasters, albeit on a smaller scale, in the U.S., Europe, Africa, Asia and South America.

*A billion in the U.S. is 10 the 9th, but in the U.K. and Germany it is 10 to the 12th. Therefore a European´s billion pounds or Euro (1,000,000,000,000 €) is a thousand times greater than an American´s paltry billion dollars ($1,000,000,000), even in the unlikely event of a one to one exchange rate.


    The ideal scenario for catastrophic failure, "the perfect storm," may be summarized in German as: Marktänderungen setzen sich plötzlich ein. Wettbewerber verwandeln sich in reißende Bestien, deren Klauen die neue Technologie und deren Fänge die mitgerissene Kundschaft sind. Jedoch die Führungsetage ist jeder Art von strategischer Veränderung abhold. Der Althergebrachtenstrategie bleiben sie hörig, trotz zunehmend verheerender Nachrichten. Je schlimmer die Lage wird, desto mehr wird diese Liebe zu alten Grundsätzen mit einer geradezu widersinnigen Gier nach taktischen Neuigkeiten und einer unstillbaren Neigung zu Klatsch und Tratsch gepaart. 


I. Why Smart Executives Fail

    In  Why Smart Executives Fail and What You Can Learn From Their Mistakes  Sydney Finkelstein presents seven "urban legends" about failure on pages two through eight. He presents his conclusion about the seven real reasons for failure on page 238. A summary of the "urban legend seven" summary follows, with each category greatly abbreviated to describe a counterpoint example with only a sentence or two. (His primary research was extensive, including 197 interviews with CEOs, CxOs, and some middle managers as well.)

1. The Executives Were Stupid
    An Wang was an Ivy League Ph.D., had several patents and had built Wang Labs into a billion dollar company before it headed south. There was certainly no lack of intelligence there.

2. The Executives Couldn't Have Known What Was Coming
    Motorola knew all about the digital cell phones that would make its analog phones obsolete. In fact, it was collecting royalties on digital phones!

3. It Was a Failure to Execute
    Many businesses with huge losses were performing all kinds of operations brilliantly.

4. The Executives Weren't Trying Hard Enough
    Many worked extraordinarily long hours. As troubles mounted, they put their work ahead of practically everything else in their lives, including their health and their marriages.

5. The Executives Lacked Leadership Ability
    Jeffery Skilling, the former CEO of Enron, could set a dynamic and clear vision and empower his people to reach that goal. Furthermore, he created an environment where excellence was highly rewarded.

6. The Company Lacked the Necessary Resources
    The companies studied were able to lose HUGE amounts of money precisely because they had huge amounts of money to lose.

7. The Executives Were Simply a Bunch of Crooks
    The clear majority of the CEOs studied who presided over gargantuan business disasters were scrupulously honest. 

    These seven reasons are not the causes of major failures. Applying them in a "trickle down" fashion to smaller disasters is not valid either.  Key failure drivers may be placed in two categories. The first category has four elements, the second three.

Category I Failure Drivers

1. The marketplace is not properly understoond: red oceans, blue oceans, turbulence and technology. Above all, there are fundamental misconceptions about the behaviour of customers. 


2. The above misunderstanding leads to poor strategy formation and ineffective strategy exeuction. In other words, it leads to strategies which are just plain bad.


3. The corporate culture does not just resist change; it is set in concrete.


4. The CEO and the CxOs share a leadership style with built in failure genes. These are elaborated upon in the three Category II Failure drivers which follow.   


Category II Failures

    The single key failure driver is the attitude of "L´État c´est moi." This saying is apocryphally attributed to Louis XIV of France (1638 - 1715), the Sun King. The royal "we" applies; the Bleader views his company and himself as an entity. The company´s interests are his interests and vice-versa. The consequences of this royal perspective lead to the final three failure drivers.


5. Creating and maintaining an image is a priority for Bleaders. Granted, branding is important. However the Bleaders devote an inordinate amount of time to their images, PR, the media, etc. A corporate equivalent to Alexander the Great, the Sun King or Napoleon appears to be strived for.


6. Like many an absolute monarch, the tolerance for heretics, naysayers, dissenters and even doubters is zero. Such persons are rapidly and ruthlessly eliminated.


7. Bleaders view themselves as in control of their enviroment, indeed, as dominating it. However the strength of acting rapidly, decisively, and with complete conviction can turn into a catastrophic weakness when major challenges are underestimated as trivial.The greater the challenges become, the more likely the Bleader is to mutate into an interesting oxymoron, "the inflexible innovator." In other words, he persists in the strategy, sometimes even in its tactics (i.e how its done), that had originally catapulted him to success. He persists in the face of all odds, oblivious to the environment. 

    The triad of five through seven leads to a corporate culture of "reality distortion." Managers become extremely selective in reporting information that is not "politically correct," i.e. does not reflect the CEO´s view of the world. The role models from politics such as Potemkin villages are applied in microcosm to the corporation.* In extreme cases the Potemkin villages exist only as fragmented figments of a Kubla Khan vision. That "vision in a dream" by Samuel Cooridge applies all to well to some investments in management ego: "In Xanadu did Kubla Khan, A stately pleasure-dome decree. . ."  Some relevant stanzas are given in the subpage "Kubla Khan."

    Interesting to note is that Alexander the Great exhibited Bleader habits, albeit with one striking exception. That is the habit of relying on old strategies and tactics. Alexander remained brilliantly innovative until his death. Admittedly he died very young, at only 33. His "failure" consisted in one common to many CEO´s. The CEO is not able to build an organization to continue his success after his tenure. On a far grander scale, Alexander died too young to have been able to set in place a means to ensure his empire´s continuation.  The link briefly summarizes the lengthy Wikipedia article about him as an interesting contrast to "business empire bulding."

    An aside is that victims, life's savings and job gone because of a Bleader, are hardly likely to view him in terms of Alexander the Great, the Sun King or Napoleon. In fact, they are more likely to view the Bleader as an oversized rat. Obviating any objection to impugning large rodents in this way, Carol Rakosi´s poem "The Experiment with a Rat" appears relevant. 

 * Potemkin villages are named after the Russian statesman Grigori Potemkin, who died in 1791. He once had impressive fake villages built along a route Catherine the Great was to travel. He wanted to convince her that all was well with the peasants. "Model villages" were also built to show off to Westerners when Russia was under Communism. In China, local bureaucrats apparently did something similar with Mao. He emphasized steel production and turned the subsistence farms into collectives. Agricultural production fell by two thirds, and the black market price of rice went to 15 times, eventually 30 times, the official price.

    Mao did not want to hear about any problems his policies were causing; acknowledgement of error was not an option. Therefore the extent of the disaster was kept from him and "well fed contentment" presented to him when he did travel. Between 1959 and 1961, according to the official Chinese statistic released in 1988, about 20 million subsistence farmers did not subsist. They starved to death.

     The statistic is revised upwards to 41 million people who died of starvation from 1959 to 1961 in our source for this paragraph, Das Schwarze Buch des Kommunismus (The Black Book of Communism), Piper Verlag, 2000, p. 546. This book is a translation (by a six man team) of Le livre noir du communisme, 1997 by the author team of Stéphane Courtois, Nicolas Werth, Jean-Louis Panné, Andrzej Paczkowski, Karel Bartosek and Jean-Louis Margolin. Another five persons contributed, and a section in the German edition about the DDR was written by Joachim Gauck and Ehrhart Neubert.

    The political left, stung, just a year later responded with Le Livre Noir du Capitalisme (The Black Book of Capitalism) edited by Gilles Perrault, 1998. The book consists of a series of essays from writers who treat what they view as the grossest depridations of capitalism. These range from the African slave trade (no argument there) to modern globalization, which seems quite a strectch. The 58 million dead from the two World Wars are attributed to capitalism, another long, long stretch. (Wars appear to be pretty much of a constant over the milllennia, regardless of whatever political systems are in favor.)

    To the 58 million of the World Wars are added the death tolls from various colonial wars, ethnic conflicts, anticommunist repressions and famines. Therefore the grand total of deaths attributed to capitalism in the 20th century reaches 100 million. To consider both political systems as equally lethal is certainly a minority viewpoint. Regardless, running the risks of war and famine while free to climb the economic ladder seems considerably more attractive than running those same risks under repressive Communist "egalitarianism."


II. Learning from Strategy and Leadership Failure


    CEOs and their boards and management teams, their advisors and consultants focus on success.  They study best practices and discuss at length the competitors viewed as most vigorous, the most dangerous potential threats.  Post-mortem  meetings about failures are few and far between. There is a perception that such meetings rapidly deteriorate  into a search for the guilty, "scapegoating,"  rather than a search for "what can we learn from our mistakes here", "what can we do better next time". This tendency, looking for someone to blame, appears even more predominate in the German business culture than in the U.S.
    Three notable exceptions are mentioned in the previously cited work by Sydney Finkelstein.  


    1) The U.S. Air Force follows a strict procedure for the mandatory debriefings after a mission.  Names and ranks are replaced with "Number One", "Number Two", etc. Errors are discussed in detail and there is group pressure to be frank. There are no repercussions as a result of statements made in the debriefings.

    2) Boeing has a procedure termed "Process Councils" to see where things went wrong in manufacture.

    3) IBM's traditional reaction to losing a customer for mainframes was immediately to put together to analyze the loss in detail.

    Meetings about strategies gone awry are, however, rare indeed. When was the last time a senior partner at a blue-chip management consultant firm arranged a series of meetings with a CEO to consider why the large scale strategy engagement had led to such disappointing results? When was the last time a sector chief arranged a meeting with the CEO and the board to discuss his recent failure with that expensive acquisition, which eventually was sold at a lost?  Or about that vaunted new product, "best in class", everyone loved so much, except the customers, who were too stupid to buy it?
    In the first chapter of Why Smart Executives Fail  Sydney Finkelstein presents seven "urban legends" -- why people think executives fail. None of them are accurate. A summary of them is presented in Tools. The book also demonstrates an important advantage of the coach. Individuals who have made mistakes, especially horrendous ones, are often unwilling, even unable, to acknowledge them at the time. They are in denial. They are far more likely to be willing to talk about their decisions rationally after they no longer hold that responsibility or are no longer active with that company.
    Coaches typically have achieved a certain distance from past accomplishments, and from past mistakes as well. Senescence entails losing some of the emotional involvement associated with an event as it occurred. The passage of time enables a more rational, logical review of it. With the benefit of hindsight, reflects the coach, he just might have handled that situation a little differently. His sharing of that hindsight with the executive is one of his most valuable contributions. This down-to-earth, realistic assessment of past performance is inherent to effective executive coaching.
    Perhaps that in part reflects an unconscious influence from the coaches of sports.  Not too many of them have had a team, or a player, who won every time out with metronomic regularity. At the mid-point of his career Boris Becker made an interesting comment in an interview. His championship performance at Wimbledon was compared to that of Stefi Graf. He immediately protested that he was not like Stefi at all. He had to battle hard and struggle fiercely to win matches. With Stefi, he said, it was completely different. For her winning a match was like getting up and eating breakfast. Yet she too had her share of losses, even at the very peak of her game. 
    Sports coaches study losses, and study them intensely, both those of others, and their own. In contrast, not too many partners at an accounting, law, or consulting firm are going to sit down with their clients to talk about what can be learned from their engagement failures, i.e. their "losses"  In fact, it is not uncommon for a senior partner stoutly to allege that he and his team have "won" all of their engagements, never had a loss, never a failure. (If pushed, a management consultant might grudingly concede that the client had failed with the implementation of the consultancy´s recommendations.)
    Most of the rest of us are not quite so fortunate as to have perfect track records. How we react to the inevitable  setbacks and how we learn from them (the company as a learning organization) is a major determinant of long term success. A critical part of that process is communication.  Any manager receives good news quickly. A distinguishing characteristic of the effective manager is how fast he receives the bad news -- to nip problems in the bud, to note and rapidly respond to early warning signs. 



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